Doubt Is Cast on Balanced Budget and Jobs Goals

ByJames L. Rowe Jr.

December 6, 1977

President Carter has little chance of balancing the federal budget by 1981 and backers of the Humphrey Hawkins full-employment bill have little chance of getting unemployment to their goal of 4 percent by 1983, according to Congressional Budget Office projections.

Alice M. Rivlin, director of the CBO, said in congressional testimony yesterday that even under "optimistic" assumptions, in which the economy grows faster than its postwar average unemployment would be 4.5 per cent by 1983.

And, under these optimistic conditions, the federal budget still would be in deficit by $49 billion in 1981 and $19 billion in 1983.

Even to keep the economy growing at this faster-than-average pace would require tax cuts bigger than those now envisioned by the administration and would likely require federal spending in excess of administration plans, according to CBO estimates.

Casting a pall over the entire economic scene will be continuing high inflation, Rivlin said. Consumer prices will raise about 6 per cent a year from now through 1983, Rivlin testified before the Joint Economic Committee.

"Inflation has proved intractable." she told Sen. William Proximire (D-Wis). "An optimist about inflation these days is someone who thinks it will not get much worse."

The CBO was established in 1974, when Congress set up its own budget process to rival the administration's. The office is supposed to supply non-partisan economic analysis and outline the economic and budgetary effects of various proposals.

The CBO said that if left to itself, the economy is unlikely to grow fast enough to generate all the new jobs and additional tax revenues Carter needs to meet his unemployment and budgetary goals. The President has endorse the Humphrey-Hawkins bill.

"A hard fact is that in only the most optimistic scenario of nonfederal demand will Congress be able to achieve all its goals," the CBO said.

For Carter to reach his loftier goal and balance the federal budget by 1981 - at the same time achieving an unemployment rate of 5 percent - the economy would have to do better than it ever has. Rivlin said a growth rate well in excess of 3 per cent would be required. [WORD ILLEGIBLE] a pace she called "extraodinary" for a five-year period.

The economy already has been in a recovery for more than 2 1/2 years. The best performance it ever turned in was between 1961 and 1966 when economic output grew about 5 per cent a year.

To reach the targets portrayed by the CBO as "optimistic" - unemployment of 4.5 per cent and a budget deficit by 19 billiom in 1963 - "We'll have to come quite close to that," she said.

To hit Carier's goal by 1981, the nation would have to exceed the pace of the early 1960s.

"I don't think he [Carter] has said 1981 very recently," Rivlin noted in response to a roxmire question.

But OMN's Mclntyre said in a recent interview that the President remains commited to balancing federal outlays and receipts by fiscal 1981 (which starts Oct. 1, 1980) and that the administration is planning its 1979 budget with that goal in mind.

It is always possible for the resident to balance the budget in 1981 no matter what, but it would entail spending cuts that would result in unemployment levels far higher than the administration or Congress would tolerate. Rivlin said that to keep unemployment to 5.2 per cent in 1981 would entail a budget deficit of $49 billion.

Congressional supporters of the Humphrey-Hawkins measure and the White House recently reached agreement on proposed legislation that would set a goal of reaching a 4 per cent unemployment level by 1983.

That is lower than the CBO's optimistic 4.5 per cent would require actions that would boost the projected rate of inflation beyond 6 per cent, Rivlin said.

She said that while the administration is talking of tax cuts in the neighborhood of $20 billion to $25 billion in 1978 and 1979, CBO estimates show that $30 billion or more will be needed, especially to offset the higher energy and Social Security taxes the administration supports.